Shares of Roku ( ROKU ) rose as much as 14 percent in early trading on Wednesday after the company announced several cost-cutting measures, including layoffs, in an effort to reduce operating costs.
as if Control fileG In a release Wednesday morning, Roku said it would cut 10 percent of its workforce, or 300 jobs, in addition to slowing its hiring pace. This marks the third round of layoffs in less than a year, after Roku cut 200 jobs in March 2023 and another 200 in November 2022.
Excluding charges related to items such as termination and the removal of select content from its distribution platform, Roku now expects third-quarter net income of $835 million to $875 million, with adjusted EBITDA in the negative range of $40 million to $20 million. This is ahead of the previous Q3 forecast of approximately $815 million in revenue and negative $50 million in Adjusted EBITDA.
Analysts weighed in on the impressive guidance increase, with JPMorgan reiterating its overweight rating on the stock.
“We (and investors) initially thought Roku’s 3Q revenue guidance was conservative, but a quarter-on-quarter increase of 7% (highly) was not expected due to the ongoing Hollywood strike,” JPMorgan analyst Corey Carpenter said on Wednesday. Note.
“We believe the increase in revenue was driven in part by a vertical improvement in ad spend for the online advertising group,” the analyst continued.
In Roku’s second quarter, brand advertising came under pressure as total US advertising came in flat year-over-year. Spending on traditional TV was down 9.4 percent, while traditional TV ad inventory, or ad inventory not bought through Upfronts, was down 17.2 percent.
At the time, management warned that the ongoing double strike in Hollywood would continue to negatively impact media and entertainment spending in the middle of the year — a familiar challenge given Roku’s heavy promotions for content.
Wells Fargo analyst Steve Cahal said: “We don’t believe revised top-line guidance has any meaningful media and entertainment improvements are under way, indicating some strength/recovery in the ad video-on-demand market for connected TV.” on Wednesday.
Cahal, who reiterated his equal weight rating and price target at $84, said the potential increase in earnings, coupled with Roku’s cost-cutting initiatives, should significantly boost adjusted EBITDA for 2024.
“We think indirect adjusted EBITDA for ’24E could exceed $300 million. [versus] Wall Street estimate of $64 million,” he wrote.
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